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Financial Instruments and Fair Value Measurements | 12 Months Ended
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Dec. 31, 2018
Financial Instruments and Fair Value Measurements [Abstract] |
Financial Instruments and Fair Value Measurements | 10. Financial Instruments and Fair Value Measurements Financial Instruments A financial instrument is cash or a contract that imposes an obligation to deliver, or conveys a right to receive cash or another financial instrument. The carrying values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. The fair value of debt approximates the carrying value of debt. Derivative Instruments and Hedging Activities On December 31, 2018, the Company had open foreign currency forward contracts which are used solely for hedging and not for speculative purposes. Management believes that its use of these instruments to reduce risk is in the Company’s best interest. The counterparties to these financial instruments are financial institutions with investment grade credit ratings. Foreign Currency Exchange Rate Risk The Company conducts business internationally and therefore is exposed to foreign currency exchange rate risk. The Company uses derivative financial instruments as cash flow and fair value hedges to manage its exposure to fluctuations in foreign currency exchange rates by reducing the effect of such fluctuations on foreign currency denominated intercompany transactions, inventory purchases and other foreign currency exposures. The currencies hedged by the Company during 2018, 2017 and 2016 include the euro and Mexican peso. In addition, the Company hedged the U.S. dollar against the Swedish krona and euro on behalf of its European subsidiaries in 2018 and 2016. These forward contracts were executed to hedge forecasted transactions and were accounted for as cash flow hedges. As such, the effective portion of the unrealized gain or loss was deferred and reported in the Company’s consolidated balance sheets as a component of accumulated other comprehensive loss. The cash flow hedges were highly effective. The effectiveness of the transactions has been and will be measured on an ongoing basis using regression analysis and forecasted future purchases of the currency. In certain instances, the foreign currency forward contracts do not qualify for hedge accounting or are not designated as hedges, and therefore are marked to market with gains and losses recognized in the Company’s consolidated statements of operations as a component of other expense (income), net. The Company’s foreign currency forward contracts are designed to offset some of the gains and losses realized on the underlying foreign currency denominated transactions as follows: Euro-denominated Foreign Currency Forward Contracts At December 31, 2017, the Company held foreign currency forward contracts with an underlying notional amount of $1,486 to reduce the exposure related to the Company’s euro-denominated intercompany loans. There were no contracts entered into as of December 31, 2018 as these contracts were settled in December 2018. The euro-denominated foreign currency forward contract was not designated as a hedging instrument. For the years ended December 31, 2018, 2017 and 2016, the Company recognized a gain of $73, a loss of $174 and a gain of $57, respectively, in the consolidated statements of operations as a component of other expense (income), net related to the euro-denominated contract. U.S. dollar-denominated Foreign Currency Forward Contracts – Cash Flow Hedge The Company entered into on behalf of one of its European Electronics subsidiaries whose functional currency is the Swedish krona, U.S. dollar-denominated currency contracts which expired ratably on a monthly basis from February 2018 through December 2018. There were no contracts entered into as of December 31, 2018 or 2017. The Company entered into on behalf of one of its European Electronics subsidiaries whose functional currency is the euro, U.S. dollar-denominated currency contracts which expired ratably on a monthly basis from February 2018 through December 2018. There were no contracts entered into as of December 31, 2018 or 2017. Mexican peso-denominated Foreign Currency Forward Contracts – Cash Flow Hedge The Company holds Mexican peso-denominated foreign currency contracts with notional amounts at December 31, 2018 of $9,017 which expire ratably on a monthly basis from January 2019 through December 2019, compared to $9,143 at December 31, 2017. The Company evaluated the effectiveness of the Mexican peso-denominated foreign currency forward contracts held as of December 31, 2018 and 2017, and the years then ended, and concluded that the hedges were effective. The notional amounts and fair values of derivative instruments in the consolidated balance sheets were as follows:
|  |  |  |  | Prepaid expenses |  | Accrued expenses and
|  | Notional amounts (A) |  | and other current assets |  | other current liabilities
December 31 |  | 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forward currency contracts |  | $ | 9,017 |  | $ | 9,143 |  | $ | 370 |  | $ | - |  | $ | - |  | $ | 221
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forward currency contracts |  | $ | - |  | $ | 1,486 |  | $ | - |  | $ | - |  | $ | - |  | $ | 48
| (A) |  | Notional amounts represent the gross contract / notional amount of the derivatives outstanding.
Gross amounts recorded for the cash flow hedges in other comprehensive loss in shareholders’ equity and in net income for the years ended December 31 were as follows:
|  |  |  |  | Gains (loss) reclassified from
|  | Gain (loss) recorded in other |  | other comprehensive income
|  | comprehensive income (loss) |  | (loss) into net income (A)
|  | 2018 |  | 2017 |  | 2016 |  | 2018 |  | 2017 |  | 2016
Derivatives designated as cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forward currency contracts |  | $ | 1,967 |  | $ | 441 | $ | (582) |  | $ | 1,376 |  | $ | 634 | $ | (164)
| (A) |  | Gains and losses reclassified from comprehensive loss into net income were recognized in COGS in the Company’s consolidated statements of operations.
The net deferred gain of $370 on the cash flow hedge derivatives will be reclassified from other comprehensive income (loss) to the consolidated statements of operations in 2019. The Company has measured the ineffectiveness of the forward currency contracts and any amounts recognized in the consolidated financial statements were immaterial for the years ended December 31, 2018, 2017 and 2016. Fair Value Measurements The Company’s assets and liabilities are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of the inputs used. Fair values estimated using Level 1 inputs consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Fair values estimated using Level 2 inputs, other than quoted prices, are observable for the asset or liability, either directly or indirectly and include among other things, quoted prices for similar assets or liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable. For forward currency contracts, inputs include foreign currency exchange rates. Fair values estimated using Level 3 inputs consist of significant unobservable inputs. The following table presents our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of inputs used.
|  |  |  |  | December 31, |  | December 31,
|  |  |  |  | 2018 |  | 2017
|  |  |  |  | Fair values estimated using |  |  |
|  |  |  |  | Level 1 |  | Level 2 |  | Level 3 |  |  |
|  | Fair value |  | inputs |  | inputs |  | inputs |  | Fair value
Financial assets carried at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forward currency contracts |  | $ | 370 |  | $ | - |  | $ | 370 |  | $ | - |  | $ | -
Total financial assets carried at fair value |  | $ | 370 |  | $ | - |  | $ | 370 |  | $ | - |  | $ | -
Financial liabilities carried at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forward currency contracts |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | 269
Earn-out consideration |  |  | 18,672 |  |  | - |  |  | - |  |  | 18,672 |  |  | 20,746
Total financial liabilities carried at fair value |  | $ | 18,672 |  | $ | - |  | $ | - |  | $ | 18,672 |  | $ | 21,015
The following table sets forth a summary of the change in fair value of the Company’s Level 3 financial liabilities related to earn-out consideration that are measured at fair value on a recurring basis.
|  | Orlaco |  | PST |  | Total
Balance at December 31, 2017 |  | $ | 8,637 |  | $ | 12,109 |  | $ | 20,746
Change in fair value |  |  | 369 |  |  | (156) |  |  | 213
Foreign currency adjustments |  |  | (404) |  |  | (1,883) |  |  | (2,287)
Balance at December 31, 2018 |  | $ | 8,602 |  | $ | 10,070 |  | $ | 18,672
|  | Orlaco |  | PST |  | Total
Balance at December 31, 2016 |  | $ | - |  | $ | - |  | $ | -
Fair value on acquisition date |  |  | 3,243 |  |  | 10,180 |  |  | 13,423
Change in fair value |  |  | 4,853 |  |  | 2,632 |  |  | 7,485
Foreign currency adjustments |  |  | 541 |  |  | (703) |  |  | (162)
Balance at December 31, 2017 |  | $ | 8,637 |  | $ | 12,109 |  | $ | 20,746
The earn-out considerations related to Orlaco and PST are recorded within other current liabilities and other long-term liabilities, respectively, in the consolidated balance sheet as of December 31, 2018. The earn-out considerations related to Orlaco and PST were recorded within other long-term liabilities in the consolidated balance sheet as of December 31, 2017. The change in fair value of the earn-out considerations are recorded within SG&A expense on the consolidated statements of operations for the years ended December 31, 2018 and 2017. The fair value for the Orlaco earn-out consideration is based on a Monte Carlo simulation utilizing forecasted earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the 2017 and 2018 earn-out period as well as a growth rate reduced by the market required rate of return. The Company will be required to pay the PST earn-out consideration, which is not capped, based on PST’s financial performance in either 2020 or 2021. The fair value of the PST earn-out consideration is based on discounted cash flows utilizing forecasted EBITDA in 2020 and 2021 using the key inputs of forecasted sales and expected operating income reduced by the market required rate of return. The increase in fair value of earn-out consideration related to the Orlaco acquisition is primarily due to actual performance exceeding forecasted performance as well as the reduced time from the current period end to the payment date offset by foreign currency translation. The Orlaco earn-out consideration reached the capped amount of €7,500 as of the quarter ended March 31, 2018. The net decrease in fair value of earn-out consideration for PST was due to a reduction in forecasted performance and foreign currency translation partially offset by the reduced time from the current period end to the payment date. The foreign currency impact for the PST earn-out considerations is included in other expense (income), net in the consolidated statements of operations. There were no transfers in or out of Level 3 from other levels in the fair value hierarchy for the year ended December 31, 2018. Except for the fair value of assets acquired and liabilities assumed related to the Orlaco acquisition discussed in Note 2, no non-recurring fair value adjustments were required for nonfinancial assets for the years ended December 31, 2018 and 2017.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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